SCM Module2 120703225201 Phpapp01

Supply Chain Management:
Designing the supply chain network

Rajendran Ananda
Krishnan
https://www.facebook.com/ialwaysthinkpr
ettythings
Topics to be covered
Designing the supply chain network
Designing the distribution network- role
of distribution, factors influencing
distribution
Design options, e-business and its impact
Distribution networks in practice
Network design in the supply chain, role
of network
Factors affecting the network design
decisions, modeling for supply chain
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Role of Distribution in the supply

chain
Distribution refers to the steps taken to move
and store a product from the supplier stage to
a customer stage in the supply chain.
Distribution is a key driver of the overall
profitability of a firm because it affects both
the supply chain cost and the customer
experience directly.
The appropriate distribution network can be
used to achieve a variety of supply chain
objectives ranging from low cost to high
responsiveness. As a result, companies in the
same industry often select very different
distribution networks.
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Dell distributes its PCs directly to end

consumers, whereas companies such as
HP distribute through resellers. Dell
customers wait several days to get a
PC, whereas customers can walk away
with an HP PC from a reseller.
P&G has chosen to distribute directly to
large
supermarket
chains
while
obligating smaller players to buy P&G
products from distributors. Products
move directly from P&G to the larger
chains , but move through an additional
stage
when
going
to
smaller
supermarkets.
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Factors Influencing Distribution

Network Design
Performance of a distribution
network should be evaluated
along two dimensions:
Customer needs that are met
Cost of meeting customer needs
The customers needs that are met
influence
the
companys
revenues, which along with cost
decide the profitability of the
delivery network.
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Customer service components:

Response time Amount of time it takes for a
customer to receive an order.
Product
variety
Number
of
different
products/configurations that are offered by the
distribution network.
Product availability Probability of having a product in
stock when a customer order arrives.
Customer experience includes the ease with which
customers can place and receive orders as well as the
extent to which this experience is customized.
Time to market Time it takes to bring a new product
to the market.
Order visibility Ability of customers to track their
orders from placement to delivery.
Returnability Ease with which a customer can return
unsatisfactory merchandise and the ability of the
network to handle such returns.
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Firms that target customers who can tolerate a long response

time require only a few locations that may be far from the
customer. These companies can focus on increasing the
capacity of each location. In contrast, firms that target
customers who value short response times need to locate
facilities close to them. These firms must have many facilities,
each with a low capacity. Thus, a decrease in the response
time customers desire increases the number of facilities
required in the network.
Changing the distribution network design affects the following
supply chain costs:
Inventories
Transportation
Facilities and handling
Information
A decrease in the response time customers desire increases the
number of facilities required in the network. As the number of
facilities in a supply chain increases, the inventory and
resulting inventory costs also increase.
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Relationship between Desired Response

Time and Number of Facilities
Required
number of
facilities
Desired
Response
Time
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Relationship between Number of

Facilities and Inventory Costs
Inventor
y Costs
Number
of
facilities
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Inbound
transportation costs are the costs incurred

in bringing material into a facility.
Outbound transportation costs are the costs of
sending material out of a facility.
Outbound transportation costs per unit tend to be
higher than inbound costs because inbound lot
sizes are typically larger.
Increasing the number of warehouse locations
decreases the average outbound distance to the
customer and makes outbound transportation
distance a smaller fraction of the total distance
travelled by the product.
Thus, as long as inbound transportation economies
of scale are maintained, increasing the number of
facilities decreases total transportation cost.
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Facilities and Transportation Cost
Transportatio
n Cost
Number of
facilities
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If
the number of facilities is increased to a point where

inbound lot sizes are also very small and result in a
significant loss of economies of scale in inbound
transportation, increasing the number of facilities increases
total transportation cost.
Facility costs decrease as the number of facilities is reduced.
Total logistics costs are the sum of inventory, transportation
and facility costs for a supply chain network. As the number
of facilities increases, total logistics costs first decrease and
then increase. Each firm should have at least the number of
facilities that minimize total logistics costs. As a firm wants
to reduce the response time to its customers further, it may
have to increase the number of facilities beyond the point
that minimizes logistics costs. A firm should add facilities
beyond the cost-minimizing point only if managers are
confident that the increase in revenues because of better
responsiveness is greater than the increase in costs because
of the additional facilities.
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Facilities and Facility Cost
Facility Cost
Number of
Facilities
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Variation in Logistics Cost and

Response time with Number of Facilities
Response
Time
Total Logistics
Cost
Number
of
Facilities
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Design Options for a Distribution

Network
Manufacturer
storage with direct

shipping Product is shipped directly from
the manufacturer to the end customer,
bypassing the retailer ( who takes the order
and initiates the delivery request). This
option is also referred to as drop shipping,
with product delivered directly from the
manufacturer to the customer. It is best
suited for a large variety of low-demand,
high-value items for which customers are
willing to wait for delivery and accept
several partial shipments.
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Manufacturer Storage with Direct

Shipping
(Drop Shipping)
Mfr
Retaile
r
Customer
Product Flow
Information
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Performance Characteristics of Manufacturer Storage

with Direct Shipping Network
Cost
Factor
Performance
Inventory
Lower costs because of aggregation.

Benefits of aggregation are highest for low
demand, high value items. Benefits are very
large if product customization can be
postponed ate manufacturer.
Transportati
on
Higher transportation costs because of

increased distance and disaggregate
shipping.
Facilities
and
handling
Lower facility costs because of aggregation.

Some saving on handling costs if
manufacturer can manage small shipments
or ship from production line.
Information
Significant investment in information

infrastructure to integrate manufacturer
and retailer.
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Service Factor
Performance
Response Time
Long response time of one to two

weeks because of increased distance
and two stages for order processing.
Response time may vary by product,
thus complicating receiving.
Product Variety
Easy to provide a very high level of

variety.
Product Availability
Easy to provide a high level of

product availability because of
aggregation at manufacturer.
Customer Experience
Good in terms of home delivery but

can suffer if order from several
manufacturers is sent as partial
shipments.
Time to market
Fast, with the product available as

soon as the first unit is produced.
Order visibility
More difficult but also more important

from a customer service perspective.
Returnability
Expensive and difficult to implement.

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Manufacturer
storage with direct shipping

and in-transit merge Unlike pure dropshipping, under which each product in the order
is sent directly from its manufacturer to the end
customer, in-transit merge combines pieces of
the order coming from different locations so
that the customer gets a single delivery.
For eg, when a customer orders a PC from Dell
along with a Sony monitor, the package carrier
picks up the PC from the Dell factory and the
monitor from the Sony factory; it then merges
the two together at a hub before making a
single delivery to the customer.
It is best suited for low-to medium demand,
high value items the retailer is sourcing from a
limited number of manufacturers.
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In-transit merge Net work

Factori
es
In-transit merge
By Carrier
Retailer
Customer
s
Customer
s
Product Flow
Information
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Performance Characteristics of In-Transit Merge

Cost Factor
Performance
Inventory
Similar to drop shipping.
Transportation
Somewhat lower transportation costs than

drop shipping.
Facilities and
handling
Handling costs higher than drop shipping

at carrier; receiving costs lower at
customer.
Information
Investment is somewhat higher than for

drop shipping.
Service Factor
Performance
Response Time
Similar to drop-shipping; may be

marginally higher.
Product variety
Similar to drop shipping.
Product
Availability
Similar to drop-shipping.
Customer
experience
Better than drop-shipping because a single

order has to be received.
Time to market
Similar to drop-shipping.
Order visibility
Similar to
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drop-shipping.
Distributor
Storage with Carrier

Delivery
Under
this
option,
inventory is not held by manufacturers
at the factories but is held by
distributors/ retailers in intermediate
warehouses, and package carriers are
used to transport products from the
intermediate location to the final
customer. It is well suited for mediumto-fast moving items. It also makes
sense when customers want delivery
faster than is offered by manufacturer
storage but do not need it immediately.
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Distributor Storage with Carrier

Delivery
Factori
es
Distributor
Storage
Custome
rs
Product Flow
Information Flow
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Performance Characteristics of Distributor storage with Carrier

Delivery
Performance
Cost Factor
Inventory
Higher than manufacturer storage. Difference is not large for

faster-moving items.
Transportation
Lower than manufacturer storage. Reduction is highest for

faster-moving items.
Facilities and
handling
Somewhat higher than manufacturer storage. The difference

can be large for very slow-moving items.
Information
Simpler infrastructure compared to manufacturer storage.
Service
Factor
Performance
Response Time Faster than manufacturer storage.

Product
variety
Lower than manufacturer storage.
Product
availability
Higher cost to provide the same level of availability as

manufacturer storage.
Customer
experience
Better than manufacturer storage with drop-shipping.
Time to
market
Higher than manufacturer storage.
Order visibility
Easier than manufacturer
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storage.
Distributor
Storage with Last-Mile

Delivery- Last-mile delivery refers to the
distributor/retailer delivering the product
to the customers home instead of using a
package carrier.
In areas with high labor costs, it is very
hard to justify distributor storage with last
mile delivery on the basis of efficiency or
improved margin. It can only be justified if
there is a large enough customer segment
willing to pay for this convenience.
An effort should be made to couple lastmile delivery with an existing distribution
network to exploit economies of scale and
improve utilization.
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Distributor Storage with Last-Mile

Delivery
Factories
Distributor/
Retailer
Warehouse
Product Flow
Customers
Information
Flow
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Performance Characteristics of Distributor Storage with LastMile Delivery
Cost Factor
Performance
Inventory
Higher than distributor storage

with package carrier delivery.
Transportation
Very high cost given minimal scale

economies. Higher than any other
distribution option.
Facilities and
handling
Facility costs higher than

manufacturer storage or distributor
storage with package carrier
delivery, but lower than a chain of
retail stores.
Information
Similar to distributor storage with

package carrier delivery.
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Service factor
Performance
Response time
Very quick. Same day to next-day

delivery.
Product variety
Somewhat less than distributor

storage with package carrier delivery
but larger than retail stores.
Product availability
More expensive to provide availability

than any other option except retail
stores.
Customer experience
Very good, particularly for bulky

items.
Time to market
Slightly higher than distributor

storage with package carrier delivery.
Order traceability
Less of an issue and easier to

implement than manufacturer
storage or distributor storage with
package carrier delivery.
Returnability
Easier to implement than other

options. Harder and more expensive
than a retail network.
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Manufacturer
or Distributor Storage
with Customer Pickup Inventory is
stored at the manufacturer or distributor
warehouse but customers place their
orders online or on the phone and then
travel to designated pickup points to
collect their merchandise. Orders are
shipped from the storage site to the
pickup points as needed. Such a network
is likely to be most effective if existing
locations
such
as
coffee
shops,
convenience stores, or grocery stores are
used as pickup sites, because this type of
network improves the economies from
existing infrastructure.
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Manufacturer or Distributor Warehouse

Storage with Consumer Pickup
Customer
Flow
Product
Flow
Retailer
Informati
on Flow
Factorie
s
Cross-Dock DC
Pickup Sites
Customers
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Performance Characteristics of Network with Consumer

Pickup sites
Cost Factor
Performance
Inventory
Can match any other option,

depending on the location of
inventory.
Transportation
Lower than the use of package

carriers, especially if using an
existing delivery network.
Facilities and
handling
Facility costs can be very high if

new facilities have to be built. Costs
are lower if existing facilities are
used. The increase in handling cost
at the pickup site can be significant.
Information
Significant investment in
infrastructure required.
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Service Factor
Performance
Response time
Similar to package carrier delivery with

manufacturer or distributor storage.
Same day delivery possible for items
stored locally at pick-up sites.
Product variety
Similar to other manufacturer or

distributor storage options.
Product availability
Similar to other manufacturer or

distributor storage options.
Customer
experience
Lower than other options because of the

lack of home delivery. In areas with high
density of population, loss of
convenience may be small.
Time to market
Similar to manufacturer storage options.
Order visibility
Difficult but essential.
Returnability
Somewhat easier given that pickup

location can handle returns.
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Retailer
storage
with
Customer Pickup Inventory is
stored locally at retail stores.
Customers walk into the retail
store or place an order online or
by phone and pick it up at the
retail store. It is best suited for
fast-moving items or items for
which customers value rapid
response.
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Performance Characteristics of Local storage at Consumer

sites
Cost Factor Pickup
Performance
Inventory
Higher than all other options.
Transportation
Lower than all other options.
Facilities and
handling
Higher than other options. The increase in handling cost

at pickup site can be significant for online and phone
orders.
Information
Some investment in infrastructure required for online and

phone orders.
Service
Factor
Performance
Response time
Same-day pickup possible for items stored locally at

pickup site.
Product variety
Lower than all other options.
Product
availability
More expensive to provide than all other options.
Customer
experience
Related to whether shopping is viewed as a positive or

negative experience by customer.
Time to market
Highest among distribution options.
Order visibility
Trivial for in-store orders.
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Difficult,
but essential, for online
E-Business and the Distribution

Network
Impact of E-Business on Customer Service
Response time to customers- In selling physical
products that cannot be downloaded, an e-business
without a physical retail outlet takes longer to fulfill
a customer request than a retail store because of
the shipping time involved. There is no such delay,
however, for products that can be downloaded like a
mutual fund prospectus or music.
Product
Variety An e-business finds it easier to

offer a large selection of products than a bricks-andmortar store. Offering the same selection at a retail
store would require a huge location with a
correspondingly large amount of inventory.
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Product
availability An e-business can greatly

increase the speed with which information on customer
demand is disseminated throughout the supply chain,
giving rise to more accurate forecasts. These improved
forecasts and the more accurate view of customer
demand leads to a better match between supply and
demand.
Customer
Experience An e-business affects customer

experience in terms of access, customization and
convenience. Unlike most retail stores that are open only
during business hours, an e-business allows access to
customers who may not be able to place orders during
regular business hours. An e-business allows a firm to
access customers who are geographically distant. Firms
that focus on mass customization can use the Internet to
help customers select a product that suits their needs.
On internet, customers have the ease of not needing to
leave home or work to make a purchase.
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Faster
time to market A firm can use e-business to

introduce new products much more quickly than a firm that
uses physical channels. A firm that sells PCs through
physical cannels must produce enough units to stock the
shelves at its distributors and retailers before it starts to
see revenue from the new product. An e-business in
contrast, introduces a new product by making it available
on the website- a distribution lag to fill the retail store is
not present.
Order
Visibility The internet makes it possible to

provide visibility of order status, which is very crucial in
online order as it has no physical equivalent to a customer
shopping.
Returnability
- It is harder with online orders, which

typically arrive from a centralized location. The proportion
of returns is also likely to be much higher for online orders
because the customers are unable to touch and feel the
product before their purchase.
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Direct
Sales to Customers An e-business allows

manufacturers and other members of the supply chain
that do not have direct contact with customers in
traditional channels to enhance revenues by bypassing
intermediaries and selling directly to customers, thereby
collecting the intermediarys incremental revenue.
Flexible
Pricing, Product Portfolio and Promotions

An e-business can easily alter prices by changing one
entry in the database linked to its website. This ability
allows an e-business to maximize revenues by setting
prices based on current inventories and demand. For eg,
the airlines make last-minute, low cost fares available on
the Web on routes with unsold seats. Can easily alter the
product portfolio that it offers as well as the promotions
it is running.
Efficient
Funds Transfer An e-business can enhance

revenues by speeding up collection.
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Impact of e-business on
cost
Inventory
An e-business can lower inventory levels and

inventory cost by improving supply chain coordination and
creating a better match between supply and demand.
Additionally, e-business enables a firm to aggregate
inventories far from customers if most customers are willing
to wait for delivery of online orders.
Facilities
Two basic types of facilities costs must be

included in the analysis: costs related to the number and
location of facilities in a network, and costs associated with
the operations that take place in these facilities. An ebusiness can reduce network facility costs by centralizing
operations, thereby decreasing the number of facilities
required. With regard to ongoing operating costs, customer
participation in selection and order placement allows an ebusiness to lower its resource costs.
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Transportation
If a firm can put its product in

a form that can be downloaded, the internet will
allow it to save on the cost and time for delivery.
For eg, downloadable music and software offer an
opportunity to eliminate all costs associated with
transporting CDs. For nondigital products,
aggregating inventories increases outbound
transportation relative to inbound transportation.
Information
An e-business can share demand

information throughout its supply chain to
improve visibility. The internet may also be used
to share planning and forecasting information
within the supply chain, further improving
coordination. This helps reduce overall supply
chain costs and better match supply and
demand.
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Distribution Networks in Practice

The
ownership structure of the distribution network can

have as big an impact as the type of distribution network
Distribution networks that have exactly the same physical flow but
different ownership structures can have vastly different
performance. For eg, a manufacturer that owns its distribution
network can control the networks actions. However, if the
manufacturer does not own the distribution network, a wide
variety of issues need to be taken into account to optimize over
the network.
The
choice of a distribution network has very long term

consequences The structure of the distribution network is one
of the most difficult decisions to change. The impact often lasts for
decades, amplifying the importance of the choice. For eg, In the
early days, PC manufacturers sold through independent
distributors and retailers. Dells emergence was a clear example of
how the direct model was often superior to the traditional model.
Other PC manufacturers, such as HP, made forays into selling PCs
directly. However, their existing distribution channels reacted
quite negatively to this- as it would cannibalize their business.
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Consider
whether an exclusive distribution

strategy is advantageous A manufacturer of
consumer electronics such as Sony could choose to
have relationships with many distributors such as
eZone, Spar etc. In this case, Sony would be interested
in increasing the availability of its products to customers
and would certainly not mind if its distributors competed
with each other to sell Sony products to customers.
Product
price, commoditization, and criticality

affect the type of distribution system preferred
by customers Interactions between a buyer and a
seller take time and resources. Many buyers would like
to establish a relationship with a single enterprise that
can deliver a full line of products. This can be
accomplished by a manufacturer with a broad line of
products. However, this is often accomplished more
effectively by a distributor carrying products from many
manufacturers.
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Integrate
the Internet with the

existing physical network To
extract maximum benefit from ebusinesses, firms should integrate it
with their existing supply chain
networks.
Separating
the
two
networks
often
results
in
inefficiencies within the supply chain.
This coupling of e-business with the
existing physical network has been
referred to as clicks-and-mortar. For
eg. Placing order online and collecting
goods from the physical store.
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The Role of Network Design in

the Supply Chain
Facility
role What role should each

facility
play?
What
processes
are
performed at each facility?
Facility
location Where should
facilities be located?
Capacity
allocation How much
capacity should be allocated to each
facility?
Market and supply allocation What
markets should each facility serve? Which
supply sources should feed each facility?
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Factors influencing Network Design Decisions

Strategic
Factors A firms competitive

strategy has a significant impact on
network design decisions within the supply
chain. Firms that focus on cost leadership
tend to find the lowest cost location for their
manufacturing facilities, even if that means
locating very far from the markets they
serve. Firms that focus on responsiveness
tend to locate facilities closer to the market
and may select a high-cost location if this
choice allows the firm to react quickly to
changing market needs.
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Classification of possible strategic roles for various

facilities:
Offshore facility: low-cost facility for export
production Serves the role of being a low-cost
supply source for markets located outside the
country where the facility is located.
Source facility: low-cost facility for global
production Often a primary source of product for
the entire global network.
Server facility: regional production facility
Objective is to supply the market where it is
located. A server facility is built because of tax
incentives, tariff barriers or high logistics cost to
supply the region from elsewhere. For eg. Suzuki got
into tie up with Maruti and establish a
manufacturing unit in India to serve Indian market.
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Contributor
facility: regional production

facility with development skills Serves the
market where it is located but also assumes
responsibility for product customization, process
improvements, product modifications or product
development.
Outpost
facility:
regional
production
facility built to gain local skills Located
primarily to obtain access to knowledge or skills
that may exist within a certain region.
Lead
facility: facility that leads in

development and process technologies
Creates
new
products,
processes
and
technologies for the entire network.
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Technological
factors If production technology displays

significant economies of scale, a few high-capacity locations are
most effective. If facilities have lower fixed costs, many local
facilities are preferred because this helps lower transportation costs.
If the fixed cost of setting up facility is high, few facility location is a
feasible option but if setting up fixed cost is low, more number of
facilities should be established.
Macroeconomic Factors
Tariffs and Tax Incentives Tariffs refer to any duties that must be
paid when product and/or equipment are moved across
international, state, or city boundaries. If a country has very high
tariffs, companies either do not serve the local market or set up
manufacturing plants within the country to save on duties.
Tax incentives are a reduction in tariffs or taxes that countries, states
and cities often provide to encourage firms to locate their facilities in
specific areas. Trade Blocs like SAARC, BRIC, European Union are
formed in order to promote trade amongst the member countries.
Developing countries often create Special Economic Zones in which
duties and tariffs are relaxed as long as production is used primarily
for export.
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Exchange Rate and Demand Risk Fluctuations

in exchange rates are common and have a
significant impact on the profits of any supply
chain serving global markets. A firm that sells its
product in the United States with production in
India is exposed to the risk of appreciation of the
rupee.
Companies must also take into account fluctuations
in demand caused by changes in the economies
of different countries. For eg. Firms with little
production flexibility experienced unutilized
capacity in Indian plants when Indian economies
slowed down between 2008 and 2009. Firms with
greater flexibility in their manufacturing facilities
were able to use the extra capacity in their Indian
plants to meet the needs of other countries where
demand was high.
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Political
factors Companies prefer to

locate facilities in politically stable
countries where the rules of commerce
and ownership are well defined. Countries
with independent and clear legal systems
allow firms to feel that they have recourse
in the courts should they need it.
Infrastructure
Factors
Key
infrastructure elements to be considered
during network design include availability
of sites, labor availability, proximity to
transportation terminals, rail service,
proximity to airports and seaports,
highway access, congestion and local
utilities.
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Competitive
Factors Companies must

consider competitors strategy, size and
location when designing their supply chain
networks.
Positive
externalities
are
instances where the collocation of multiple
firms benefits all of them. It leads to
competitors locating close to each other.
For eg, gas stations and retail stores tend
to locate close to each other because
doing so increases the overall demand,
thus benefiting all parties. In malls,
retailers are located close to each other,
thus providing convenience to the
customers and benefitted themselves by
increase in sales.
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Frame work for Network design

Decisions
Competitive
Strategy
Internal Constraints
Capital, Growth
Strategy
Production
Technologies Cost,
scale/scope impact
Competitive
Environment
Aggregate Factors
and Logistic s
costs
Phase
1
SC
Strateg
y
Phase
2
Reg
Facility
Conifig
Phase
3
Desirab
le sites
Production
Methods
Factor costs
Global
Competition
Tariffs & Tax
Incentives
Regional Demand
Size, growth,
homogeneity
Political, Exchange
Rate and Demand
Risk
Available Infra
structure
Phase
4
Locatio
n
Choice
Logistics Cost
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Framework for Network Design Decisions
Phase
I: Design a Supply Chain

Strategy Starts with a clear definition
of the firms competitive strategy as the
set of customer needs that the supply
chain aims to satisfy. Managers must
forecast the likely evolution of global
competition and whether competitors in
each market will be local or global
players. Constraints on available capital
and
whether
growth
will
be
accomplished by acquiring existing
facilities, building new facilities or
partnering.
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Phase
II: Define the Regional Facility

Configuration Forecast of the demand by
country. Include a measure of the size of the
demand as well as a determination of whether the
customer requirements are homogenous or
variable across different countries. Homogenous
requirements favor large consolidated facilities
whereas requirements that vary across countries
favor smaller, localized facilities. If economies of
scale are significant in reducing costs, it may be
better to have few facilities serving many markets.
If economies of scale are not significant , it may be
better for each market to have its own facility.
They must identify demand risk, exchange rate
risk, political risk, tax incentives and regional
tariffs for local production. They must also decide
whether a facility needs to be located close to or
far from a competitors facility.
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Phase
III: Select a Set of Desirable

Potential Sites Hard infrastructure
requirements include the availability of
suppliers,
transportation
services,
communication, utilities and warehousing
infrastructure. Soft infrastructure facilities
include the availability of skilled workforce,
workforce turnover and the community
receptivity to business and industry.
Phase IV: Location Choices Maximize
total profits taking into account the
expected margin and demand in each
market, various logistics and facility costs,
and the taxes and tariffs at each location.
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Cost Minimization Model

Data Needed:
Plant Data: Capacity, Fixed Cost, Unit variable production cost.
Market data : Quarterly Demand, Price per unit.
Transportation Cost from one plant to another market.
M = No. of plants; let i = 1,,m
N = No. of markets; let j = 1,., n
Dem j = Quarterly demand at market j
Cap i = Quarterly production capacity at plant i.
Cost ij = Cost of producing and transporting one unit from plant I to
market j
Fcost i = Fixed cost of facility I
Quant ij = Quantity shipped from plant i to market j
Objective function will be :
Minimize Cost ij x Quant ij
Constraints : Quant ij = Dem j
Quant ij Cap I
Quant ij 0
hinkprettythings
Profit Maximization Model

Gross Profit = Revenue VC
Net Profit = Gross Profit Fixed
Cost
Objective Function:
Maximize Price j x Quant ij -
Cost ij x Quant ij
Constraints : Quant ij Dem j
Quant ij Cap i
Quant ij 0
hinkprettythings
Thank You
hinkprettythings

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Supply Chain Management:

Designing the supply chain network

Role of Distribution in the supply

Dell distributes its PCs directly to end

Factors Influencing Distribution

Customer service components:

Firms that target customers who can tolerate a long response

Relationship between Desired Response

Relationship between Number of

transportation costs are the costs incurred

Relationship between Number of

the number of facilities is increased to a point where

Relationship between Number of

Variation in Logistics Cost and

Design Options for a Distribution

storage with direct

Manufacturer Storage with Direct

Performance Characteristics of Manufacturer Storage

Lower costs because of aggregation.

Higher transportation costs because of

Lower facility costs because of aggregation.

Significant investment in information

Long response time of one to two

Easy to provide a very high level of

Easy to provide a high level of

Good in terms of home delivery but

Fast, with the product available as

More difficult but also more important

Expensive and difficult to implement.

storage with direct shipping

In-transit merge Net work

Performance Characteristics of In-Transit Merge

Similar to drop shipping.

Somewhat lower transportation costs than

Handling costs higher than drop shipping

Investment is somewhat higher than for

Similar to drop-shipping; may be

Similar to drop shipping.

Better than drop-shipping because a single

Storage with Carrier

Distributor Storage with Carrier

Performance Characteristics of Distributor storage with Carrier

Higher than manufacturer storage. Difference is not large for

Lower than manufacturer storage. Reduction is highest for

Somewhat higher than manufacturer storage. The difference

Simpler infrastructure compared to manufacturer storage.

Response Time Faster than manufacturer storage.

Lower than manufacturer storage.

Higher cost to provide the same level of availability as

Better than manufacturer storage with drop-shipping.

Higher than manufacturer storage.

Easier than manufacturer

Storage with Last-Mile

Distributor Storage with Last-Mile

Performance Characteristics of Distributor Storage with LastMile Delivery

Higher than distributor storage

Very high cost given minimal scale

Facility costs higher than

Similar to distributor storage with

Very quick. Same day to next-day

Somewhat less than distributor

More expensive to provide availability

Very good, particularly for bulky